HOW TO TERMINATE A COMMERCIAL LEASE EARLY
April 1, 2020
No business leader wants to go back on their word. However, some situations push companies into untenable situations. This is particularly true for those leasing a commercial space. As circumstances change, so might a business’ needs.
A sudden uptick in revenue may necessitate an expansion, leaving your current location for a larger property. Or maybe an unexpected change to market conditions leads to a period of cost-cutting, and it no longer makes financial sense to remain in the current space. So how might a commercial tenant secure an early exit from their lease?
Early Termination Clauses
For those looking to exit a commercial lease prior to its expiration, the most straightforward path is via an early termination clause. Also referred to as a break clause, this is a provision that can be included in a lease agreement. It will generally outline:
The circumstances under which one party can break the lease
Terms for doing so, such as additional fees
Stipulations regarding advance notice
Not every commercial lease includes an early termination clause. That is something that needs to be agreed to upfront. Landlords, if they agree to such terms at all, might ask for something such as compensation based on months remaining on the lease. Without thorough negotiation, a break clause can be quite severe for a tenant.
Negotiating an Early Exit
For commercial tenants without an early termination clause, the most likely way to get out of a lease is generally through discussions with the landlord. Because you signed a contractual agreement, it may feel like they have the upper hand. Many property owners, however, are willing to listen. This may be particularly true if:
The lease is nearing its natural end anyway
The landlord believes market conditions will allow them to quickly fill the space
You have a solid, established relationship with the landlord
Even if both sides agree to an early exit, finalizing the deal often requires some negotiation. During these discussions, you will likely want to take steps to protect yourself – not just financially, but legally as well. This can help ensure there is a clean break, and that you do not receive an unpleasant surprise months down the line.